14 Aug 2014 AMC - Market turned from bearish to bullish

14 Aug 2014 AMC - Market turned from bearish to bullish

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: + 0.4%

·         Germany's DAX: + 0.3%

·         France's CAC: + 0.3%

·         Spain's IBEX: -0.1%

·         Portugal's PSI: + 1.0%

·         Italy's MIB Index: -0.3%

·         Irish Ovrl Index: + 1.0%

·         Greece ASE General Index: + 0.7%

Before Market Opens 

S&P futures vs fair value: +1.20. Nasdaq futures vs fair value: +1.00.
The S&P 500 futures trade one point above fair value.

The major Asian bourses ended on a mixed note. Bank of Korea cut its key rate 25 basis points to 2.25%, citing slow growth in domestic demand. Elsewhere, Bank Indonesia made no changes to its policy, keeping its key rate at 7.50%. Also of note, Japan's government downgraded its machinery orders assessment following the disappointing report for June. 

·         On the economic front: 

o    Japan's Core Machinery Orders jumped 8.8% month-over-month (expected 15.3%; previous -19.5%), while the year-over-year reading fell 3.0% (consensus 3.3%; prior -14.3%) 

o    Australia's MI Inflation Expectations decreased to 3.1% from 3.8% 

o    New Zealand's Retail Sales rose 1.2% quarter-over-quarter (expected 1.0%; last 0.8%), while Core Retail Sales also increased 1.2% (consensus 1.1%; prior 1.0%). Separately, Business PMI slipped to 53.0 from 53.4 

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·         Japan's Nikkei rose 0.7%, gaining for a fourth straight session. A weaker yen supported exporters as Hitachi added 0.5% and Sony climbed 1.1%. 

·         Hong Kong's Hang Seng shed 0.4%, easing off its best levels since November 2010. Heavyweight Tencent Holdings weighed as shares lost 2.3% despite the company posting better than expected quarterly results. 

·         China's Shanghai Composite lost 0.7%, falling from eight-month highs. Real estate developers were pressured as Vanke and Gemdale lost 2.0% and 1.6%, respectively. 

Major European indices trade higher across the board despite worse than expected GDP readings from Germany, France, and the eurozone. The slow growth has been viewed as a reason for the ECB to continue on its policy course or even lean towards additional easing. In France, the flat GDP reading was followed by Finance Minister Michel Sapin lowering the 2014 GDP target to 0.5% from 1.0%. 

·         Participants received several data points: 

o    Eurozone preliminary Q2 GDP was unchanged quarter-over-quarter (expected 0.1%; previous 0.2%), while the year-over-year reading increased 0.7%, as expected. Separately, CPI fell 0.7% month-over-month (expected -0.6%; prior 0.1%), while the year-over-year reading increased 0.4%, as expected. Core CPI increased 0.8% year-over-year, which also matched expectations 

o    Germany's preliminary Q2 GDP contracted 0.2% (expected -0.1%; previous 0.7%), while the year-over-year reading increased 0.8% (consensus 1.5%; prior 2.5%) 

o    French GDP was unchanged quarter-over-quarter (expected 0.1%; last 0.0%), while Nonfarm Payrolls increased 0.1% quarter-over-quarter (expected -0.1%; prior -0.1%)

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·         Germany's DAX is higher by 0.2% with Infineon Technologies in the lead. The stock trades higher by 1.7%. On the downside, K+S is the weakest performer, down 2.7%, despite beating earnings estimates. 

·         In France, the CAC trades up 0.2% with 35 of its 40 components showing gains. Electricite de France leads with a gain of 3.9%, while BNP Paribas is among the laggards, down 1.0%. 

·         Great Britain's FTSE has added 0.4%. TUI Travel sports an advance of 3.8% after reporting strong results. Miners lag with BHP Billiton and Rio Tinto down 0.4% and 1.3%, respectively.

U.S. Equities

·         Futures suggest little change at the open

·         The VIX (12.90) holds at its lowest levels of August

·         Initial Claims (311K actual v. 305K expected)

·         Continuing Claims (2544K actual v. 2523K expected)

·         Import Prices ex-oil (0.0%)

·         Export Prices ex-ag. (0.3%)

o    S&P Futures -1 @ 1944

o    Dow Futures -5 @ 16,614

o    Nasdaq Futures -1 @ 3945

Asia

·         The major Asian bourses ended mixed

·         Bank of Korea cut its key rate 25bps to 2.25%

·         Japan's core machinery orders climbed 8.8% MoM (15.5% MoM expected), but the number was well short of estimates

·         India's Wholesale Price Index slid to 5.19% YoY (5.43% YoY previous)

·         Australia's MI Inflation Expectations eased to 3.1% (3.8% previous)

·         Japan's Nikkei (+0.7%) gained for a fourth straight session

·         Hong Kong's Hang Seng (-0.4%) eased off its best levels since November 2010

·         China's Shanghai Composite (-0.7%) fell off eight-month highs

·         India's Sensex (+0.7%) climbed to a two-week high

·         Australia's ASX (+0.6%) rallied for the third time in four days, supported by solid earnings 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 19 (+0.43%) at 4453, the S&P 500 closed up 8 (+0.43%) at 1955, and the Dow closed up 62 (+0.37%) at 16714. Action came on below average volume (NYSE 506 mln vs. avg. of 659; NASDAQ 1434 mln vs. avg. of 1681), with advancers outpacing decliners (NYSE 2116/1003, NASDAQ 1532/1162) and new highs outpacing new lows(NYSE 91/23, NASDAQ 44/46).

Relative Strength: 
Natural Gas-UNG +1.8%, Clean Energy-PBW +1.69%, U.S. Home Construction-ITB +1.68%, Homebuilders-XHB +1.58%, Biotechnology-IBB +1.58%, Poland-EPOL +1.44%, Vietnam-VNM +1.15%, India-INP +1.12%, Israel-EIS +1.08%, Switzerland-EWL +0.88%. 

Relative Weakness: 
Volatility-VXX -3.38%, Gasoline-UGA -2.65%, Oil-USO -2.53%, Heating Oil-UHN -2.1%, Silver Miners-SIL -1.87%, China 25 Index-FXI -1.09%, South Africa-EZA -0.6%, Chile-ECH -0.54%, Egypt-EGPT -0.52%, Middle East and Africa-GAF -0.47%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Climb Amid Light Volume
The major averages posted modest gains on Thursday with the S&P 500 (+0.4%) extending its week-to-date advance to 1.2%. Small caps lagged throughout the session as the Russell 2000 (+0.2%) was unable to reclaim its 200-day moving average (1145).

Despite receiving disappointing economic data from overseas (Eurozone GDP 0.0%; expected 0.1%), equity indices climbed out of the gate with yesterday's leading sector—health care—pacing the advance. The third-largest sector added 1.2% with help from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 261.20, +4.07) settled higher by 1.6% to extend its weekly gain to 3.8%.

The relative strength of biotechnology underpinned the Nasdaq Composite, but the tech-heavy index could not overtake the S&P 500 due to the underperformance of large cap technology names.

The tech sector (+0.1%) spent the entire session near its flat line as heavily-weighted components like Apple (AAPL 97.50, +0.26), Google (GOOGL 584.65, +0.09), IBM (IBM 187.88, -0.07), and Oracle (ORCL 40.22, -0.02) spun their wheels. Also of note, Cisco Systems (CSCO 24.54, -0.66) tumbled 2.6% with concerns about slow order growth overshadowing its better than expected earnings and revenue.

Chipmakers, however, finished a bit ahead of the sector with the PHLX Semiconductor Index adding 0.2%. Avago (AVGO 73.84, +1.87) outperformed, climbing 2.6% after agreeing to sell LSI's Axxia Networking Business assets to Intel (INTC 33.94, -0.16) for $650 million.

Elsewhere among cyclical sectors, the consumer discretionary space (+0.8%) outperformed despite losses in the quick-service restaurant space after Red Robin Gourmet Burgers (RRGB 52.63, -11.92) and Noodles & Co (NDLS 21.16, -4.06) reported disappointing results. The two sank 18.5% and 16.1%, respectively, while the discretionary sector drew strength from homebuilders and retailers. The iShares Dow Jones US Home Construction ETF (ITB 23.04, +0.38) and SPDR S&P Retail ETF (XRT 85.36, +0.84) settled higher by 1.7% and 1.0%, respectively.

Switching to the countercyclical side, the utilities sector (+1.0%) followed not far behind health care, while consumer staples (+0.4%) and telecom services (+0.4%) ended right behind the S&P 500. In the staples sector, Wal-Mart (WMT 74.39, +0.36) added 0.5% after reporting in-line results and lowering its guidance for the full year.

Treasuries rallied overnight and the 10-yr note notched its high just ahead of the open before surrendering about half of its gain during the session. The benchmark 10-yr yield fell three basis points to 2.40%.

Participation was well below average with just 506 million shares changing hands at the NYSE floor, which represented the lowest total of the year.

Economic data was limited to initial claims and import/export prices: 

·         The initial claims increased to 311,000 from an upwardly revised 290,000 (from 289,000), while the Briefing.com consensus expected an increase to 305,000 

o    Over the past several weeks, the initial claims level had averaged below 300,000, which normally signals an economy at or near full employment 

o    If the current levels hold for several weeks, the summer drop will be written off as resulting from poor seasonal adjustments, but if the return above the 300,000 mark is a one-time event, that will be a sign of health from the labor market 

·         Export prices, excluding agriculture, increased 0.3% in July after decreasing 0.3% in the prior reading 

o    Excluding oil, import prices were unchanged, which followed last month's downtick of 0.1% 

Tomorrow, the PPI report for July (Briefing.com consensus 0.2%) and the Empire Manufacturing survey for August (consensus 15.5) will be released at 8:30 ET, while the Net Long-Term TIC Flows report will cross the wires at 9:00 ET. July Industrial Production (consensus 0.3%) and Capacity Utilization (expected 79.2%) will be announced at 9:15 ET, while the preliminary reading of the Michigan Sentiment survey for August (consensus 81.7) will be reported at 9:55 ET. 

·         Nasdaq Composite +6.6% YTD 

·         S&P 500 +5.8% YTD 

·         Dow Jones Industrial Average +0.8% YTD 

·         Russell 2000 -1.7% YTD

Commodities

Closing Commodities: Crude oil continues sell-off, drops 2.1% in today's session

·         Dec gold popped to a session high of $1321.80 per ounce in early morning trade following economic data that showed the initial claims increased to 311K from an upwardly revised 290K (from 289K) while the Briefing.com consensus expected an increase to 305K.

·         However, the yellow metal quickly retreated towards the unchanged line where it chopped around until it settled just 50 cents higher at $1315.20 per ounce.

·         Sep silver spent most of today's session in positive territory, rising as high as $19.99 per ounce. It eventually settled with a 0.3% gain at $19.90 per ounce.

·         Sep crude oil trended lower in negative territory today after pulling back from a session high of $97.38 per barrel set at floor trade open. Unable to find buying interest, it fell as low as $95.28 per barrel and settled with a 2.1% loss at $94.54 per barrel.

·         Sep natural gas, on the other hand, rallied to a session high of $3.95 per MMBtu on better-than-anticipated inventory data. The EIA reported that for the week ending Aug 8, inventories showed a build of 78 bcf when a build of 81-83 bcf was expected.

·         It spent the remainder of the session trading slightly below the session high and settled at $3.90 per MMBtu, or 2.1% higher.

COMEX Metals Closing Prices

  Dec gold rose $0.50 to $1315.20/oz 

·         Gold popped to a session high of $1321.80 in early morning trade following economic data that showed the initial claims increased to 311K from an upwardly revised 290K (from 289K) while the Briefing.com consensus expected an increase to 305K. However, the yellow metal quickly retreated towards the unchanged line where it chopped around until it settled just 50 cents higher. 

  Sep silver rose $0.06 to $19.90/oz 

·         Silver spent most of today's session in positive territory, rising as high as $19.99. It eventually settled with a 0.3% gain. 

  Sep copper fell 2 cents to $3.09/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn rose 5 cents to $3.63/bushel 

·         Sep wheat rose 8 cents to $5.37/bushel 

·         Nov soybeans rose 9 cents to $10.56/bushel 

·         Sep ethanol rose 1 cent to $2.18/gallon 

·         Nov sugar (#16 (U.S.)) settled unchanged at 25.88 cents/lb

NYMEX Energy Closing Prices

  Sep crude oil fell $2.02 to $94.54/barrel 

·         Crude oil trended lower in negative territory today after pulling back from a session high of $97.38 set at floor trade open. Unable to find buying interest, it fell as low as $95.28 and settled with a 2.1% loss. 

  Sep natural gas rose 8 cents to $3.90/MMBtu 

·         Natural gas, on the other hand, rallied to a session high of $3.95 on better-than-anticipated inventory data. The EIA reported that for the week ending Aug 8, inventories showed a build of 78 bcf when a build of 81-83 was expected. It spent the remainder of the session trading slightly below the session high and settled with a 2.1% gain. 

  Sep heating oil fell 8 cents to $2.82/gallon

  Sep RBOB rose fell 8 to $2.67/gallon

Treasuries

30Y Closes at 3.192%, Lowest Since May 2013: 10-yr: +06/32..2.402%..USD/JPY: 102.45..EUR/USD: 1.3367

·         Treasuries posted a second day of gains as trade was supported by this afternoon's strong 30y bond auction. Click here to see an intraday yields chart.

·         The complex held little changed into the cash open with most maturities climbing to their best levels of the session in response to the disappointing initial (311K actual v. 305K expected) and continuing (2544K actual v. 2523K expected) claims data. 

·         Sellers managed to take control and drop action back onto the flat line as equity markets churned higher and traders prepared for this afternoon's $16 bln 30y bond auction.

·         The auction drew 3.224% (WI 3.247%) and a solid 2.60x bid/cover (12-auction average 2.38x) as indirect (45.9%) and direct (24.4%) bids both outpaced their 12-auction averages. Primary dealers were left with just 29.7% of the supply. 

·         Post-auction buying pushed the 30y down -4.9bps to 3.192% as trade settled at its lowest level since May 2013. 

·         The 10y eased -1.3bps to 2.400% and closed at its lowest level in 13 months. 

·         The 5y slipped -1bp to 1.567% as action finished at a two-month low. Support in the 1.550% area will be in focus in the days ahead. 

·         Up front, the 2y lagged, tacking on +0.8bps to 0.408%. Today's selling caused the yield to tick off its lowest close since June. 

·         A flatter curve developed with the 2-10-yr spread tightening to 199bps. 

·         Precious metals ended little changed with gold flat @ 1315 and silver +$0.03 @ 19.88. 

·         Data: PPI, Empire Manufacturing (8:30), Net Long-Term TIC Flows (9), industrial production, capacity utilization (9:15), and Michigan Sentiment (9:55). 

·         Fed Speak: Minny's Kocherlakota discusses "The Current and Future State of Community Banking, Community Supervision/Regulation and the Economy" (10:45).

On other news.... 

Currencies 

Dollar Drifts Little Changed: 10-yr: +02/32..2.406%..USD/JPY: 102.48..EUR/USD: 1.3361

·         The Dollar Index drifts little changed near 81.60. Click here to see a daily Dollar Index chart.

·         The greenback pressed to session lows near 81.40 following this morning's larger than expected initial and continuing claims, but has rallied throughout U.S. trade as equities continue to march higher.

·         EURUSD is flat @ 1.3365 as trade has managed to shrug off this morning's disappointing GDP data from the region. Action has tested support near 1.3350 for the past week, but support in the area has been able to hold. French and Italian banks are closed tomorrow for Assumption Day. 

·         GBPUSD is -10 pips @ 1.6680 as trade looks likely to settle at a four-month low. Sterling saw some light follow through selling after yesterday's comments from Bank of England Governor Mark Carney suggested a rate hike may not come as soon as markets were anticipating. Support near 1.6650 is guarded by the 200 dma. Britain's Second Estimate GDP is scheduled to cross the wires tomorrow. 

·         USDCHF is -10 pips @ .9065 as trade slips following three days of gains. The pair saw yet another test of .9100, but was once again rejected at the level. Trade remains closely correlated to the euro. 

·         USDJPY is +10 pips @ 102.50 as buyers remain in control for a fourth day. Today's bid comes after core machinery orders surged 8.8% MoM, but fell well short of the 15.5% MoM advance that was expected. The 102.80 level will be watched closely in the days ahead. 

·         AUDUSD is +10 pips @ .9310 as action holds onto small gains. Resistance near .9340 remains under close watch as the 100 dma provides additional help. 

·         USDCAD is -5 pips @ 1.0910 after recovering its early losses. The pair dipped to 1.0885, its lowest of August, but recouped those losses after the in-line New Home Price Index (0.2% MoM) reading. Canadian data scheduled for tomorrow is limited to manufacturing sales.

Next Week In View




Economic Commentaries

Economic Summary: Jobless Claims rise faster than expected; PPI tomorrow at 8:30
Economic Data Summary:

·         Weekly Initial Claims 311K vs Briefing.com consensus of 305K; Last Week was revised to 290K from 289K

·         Weekly Continuing Claims 2.544 M vs Briefing.com consensus of 2.523 M ; Last Week was revised to 2.519 M from 2.518 M

o    At the time, we advocated that the drop in claims was likely a result of seasonal biases due to the auto industry. Motor vehicle manufacturing plants that were normally closed for retooling may have been kept open to meet elevated demand. Meanwhile, the DOL reported that there were no special factors in the sub-300,000 claims results. 

·         July Export Prices Ex-Ag 0.3% (June was -0.3%).

·         July Import Prices Ex-Oil 0.3% (June was -0.1%).

Upcoming Economic Data:

·         July PPI due out Friday at 8:30 (Briefing.com consensus of 0.2%; June was 0.4%)

·         July Core PPI due out Friday at 8:30 (Briefing.com consensus of 0.2%; June was 0.2%)

·         August Empire Manufacturing due out Friday at 8:30 (Briefing.com consensus of 15.5; July was 25.6)

·         June Net Long Term TIC Flows due out Friday at 9:00 (Briefing.com consensus of ; May was $19.4 bln)

·         July Industrial Production due out Friday at 9:15 (Briefing.com consensus of 0.3%; June was 0.2%)

·         July Capacity Utilization due out Friday at 9:15 (Briefing.com consensus of 79.2%; June was 79.1%)

·         August Michigan Sentiment due out Friday at 9:55 (Briefing.com consensus of 81.7; July was 81.8)

Upcoming Fed/Treasury Events:

·         The Treasury is scheduled to auction off $13 bln in 30 year bonds at 13:00

Other International Events of Interest

·         Japan's core machinery orders climbed 8.8% MoM (15.5% MoM expected), but the number was well short of estimates.

·         Eurozone Flash GDP printed 0.0% QoQ (0.1% QoQ expected)

Jason's Commentaries

It's confirmed.... The market lost its bearishness, after the sharp drop at the start of Aug, the market begin regaining its losses, turning bearishness in bullish. From a dead cat bounce becoming a bullish trend. The market started last night with a bullish bias and continued all the way till the closing bell. There again, the internals were showing divergence once again. It's making me wonder this bullishness is geniune or not. On the sectors wise, CISCO sunk by 2.62% after annoucing that they are chopping 6k jobs and the Energy sectors continue to drop as the oil prices droped below $96. Needless to say that the biggest gainer is healthcare and Utilities, each gaining 1.18% and 0.87% respectively. I think that today is likely to be a really flat day but to the upside so the indices are facing strong resistance already.








Market Call: FLAT to upside

Date: 24 Feb 2014